[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

WHAT WILL IT COST? PROTECTING THE
TAXPAYER FROM AN UNACHIEVABLE
COAST GUARD ACQUISITION PROGRAM

=======================================================================

(112-53)

HEARING

BEFORE THE

SUBCOMMITTEE ON
COAST GUARD AND MARITIME TRANSPORTATION

OF THE

COMMITTEE ON
TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

__________

OCTOBER 4, 2011

__________

Printed for the use of the
Committee on Transportation and Infrastructure

Available online at: http://www.gpo.gov/fdsys/browse/
committee.action?chamber=house&committee=transportation

U.S. GOVERNMENT PRINTING OFFICE
70-554 WASHINGTON : 2012
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing Office,
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202�09512�091800, or 866�09512�091800 (toll-free). E-mail, gpo@custhelp.com.

COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

JOHN L. MICA, Florida, Chairman
DON YOUNG, Alaska NICK J. RAHALL II, West Virginia
THOMAS E. PETRI, Wisconsin PETER A. DeFAZIO, Oregon
HOWARD COBLE, North Carolina JERRY F. COSTELLO, Illinois
JOHN J. DUNCAN, Jr., Tennessee ELEANOR HOLMES NORTON, District of
FRANK A. LoBIONDO, New Jersey Columbia
GARY G. MILLER, California JERROLD NADLER, New York
TIMOTHY V. JOHNSON, Illinois CORRINE BROWN, Florida
SAM GRAVES, Missouri BOB FILNER, California
BILL SHUSTER, Pennsylvania EDDIE BERNICE JOHNSON, Texas
SHELLEY MOORE CAPITO, West Virginia ELIJAH E. CUMMINGS, Maryland
JEAN SCHMIDT, Ohio LEONARD L. BOSWELL, Iowa
CANDICE S. MILLER, Michigan TIM HOLDEN, Pennsylvania
DUNCAN HUNTER, California RICK LARSEN, Washington
ANDY HARRIS, Maryland MICHAEL E. CAPUANO, Massachusetts
ERIC A. ``RICK'' CRAWFORD, Arkansas TIMOTHY H. BISHOP, New York
JAIME HERRERA BEUTLER, Washington MICHAEL H. MICHAUD, Maine
FRANK C. GUINTA, New Hampshire RUSS CARNAHAN, Missouri
RANDY HULTGREN, Illinois GRACE F. NAPOLITANO, California
LOU BARLETTA, Pennsylvania DANIEL LIPINSKI, Illinois
CHIP CRAVAACK, Minnesota MAZIE K. HIRONO, Hawaii
BLAKE FARENTHOLD, Texas JASON ALTMIRE, Pennsylvania
LARRY BUCSHON, Indiana TIMOTHY J. WALZ, Minnesota
BILLY LONG, Missouri HEATH SHULER, North Carolina
BOB GIBBS, Ohio STEVE COHEN, Tennessee
PATRICK MEEHAN, Pennsylvania LAURA RICHARDSON, California
RICHARD L. HANNA, New York ALBIO SIRES, New Jersey
JEFFREY M. LANDRY, Louisiana DONNA F. EDWARDS, Maryland
STEVE SOUTHERLAND II, Florida
JEFF DENHAM, California
JAMES LANKFORD, Oklahoma
REID J. RIBBLE, Wisconsin
CHARLES J. ``CHUCK'' FLEISCHMANN,
Tennessee
------ 7

Subcommittee on Coast Guard and Maritime Transportation

FRANK A. LoBIONDO, New Jersey, Chairman
DON YOUNG, Alaska RICK LARSEN, Washington
HOWARD COBLE, North Carolina ELIJAH E. CUMMINGS, Maryland
ANDY HARRIS, Maryland CORRINE BROWN, Florida
FRANK C. GUINTA, New Hampshire TIMOTHY H. BISHOP, New York
CHIP CRAVAACK, Minnesota MAZIE K. HIRONO, Hawaii
BLAKE FARENTHOLD, Texas MICHAEL H. MICHAUD, Maine
JEFFREY M. LANDRY, Louisiana, NICK J. RAHALL II, West Virginia
Vice Chair (Ex Officio)
JOHN L. MICA, Florida (Ex Officio)

CONTENTS

Page

Summary of Subject Matter........................................ iv

TESTIMONY
Panel One

Hutton, John P., Director, Acquisition and Sourcing Management,
Government Accountability Office............................... 4

Panel Two

Papp, Admiral Robert J., Jr., Commandant, United States Coast
Guard.......................................................... 11

PREPARED STATEMENTS SUBMITTED BY WITNESSES

Hutton, John P................................................... 23
Papp, Admiral Robert J., Jr...................................... 36

[GRAPHIC] [TIFF OMITTED] T0554.001

[GRAPHIC] [TIFF OMITTED] T0554.002

[GRAPHIC] [TIFF OMITTED] T0554.003

[GRAPHIC] [TIFF OMITTED] T0554.004

[GRAPHIC] [TIFF OMITTED] T0554.005

WHAT WILL IT COST? PROTECTING THE TAXPAYER FROM AN UNACHIEVABLE COAST
GUARD ACQUISITION PROGRAM

----------

TUESDAY, OCTOBER 4, 2011

House of Representatives,
Subcommittee on Coast Guard and Maritime
Transportation,
Committee on Transportation and Infrastructure,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:30 a.m. in
room 2167, Rayburn House Office Building, Hon. Frank LoBiondo
(Chairman of the subcommittee) presiding.
Mr. LoBiondo. Good morning. The subcommittee will come to
order. The subcommittee is meeting this morning to examine the
status of the Coast Guard's major acquisition program, and hear
from the commandant on what his plans are to restore public
faith in the program.
Though the subcommittee previously held an acquisition
hearing in April, we promised to revisit the issue often to
ensure that the Coast Guard's major acquisition programs
continue to improve by addressing valid concerns over rising
costs, schedule delays, and capability shortfalls.
As part of our oversight effort, the committee asked the
Government Accountability Office to review the current program
to determine whether it is still on track, and to make
recommendations to ensure its success. The GAO is here today to
present those findings and recommendations.
In 2002 the Coast Guard signed the contract to begin the
acquisition program formally known as Integrated Deepwater
System. Deepwater was supposed to provide a complete
recapitalization and modernization of the Service's larger
aging assets, as well as its outdated communications and
information systems over a 20-year period. Now nearly a decade
later, the subcommittee is concerned that the Service has less
to show for the investment of over $7 billion in taxpayer money
than it should.
The GAO found that the 2007 rebaseline for Deepwater
programs is no longer viable. Using that rebaseline as a guide
of the Coast Guard's 17 large acquisition programs, 10 are over
budget, 8 are behind schedule, and 6 are both over budget and
behind schedule. I hope that the commandant will address this
issue and update the subcommittee on his efforts to provide a
more realistic appraisal of total acquisition costs and
timelines.
The GAO also questioned the Service's assertions that new
assets are providing increased capability. It noted that some
new assets are not performing at full capability, while others
still need to go through operational tests and evaluation to
assure they do perform as required. Take, for example, the
National Security Cutter. Despite an investment of over $3
billion, the GAO and inspector general have both reported that
the National Security Cutter is currently not performing at its
planned capability. The subcommittee is very concerned, and I
don't know how to underscore that enough; they are very
concerned that the Coast Guard has not yet taken steps to
address those capability gaps.
The Service needs to develop a plan to provide air
surveillance support for the NSC and achieve 225 days away from
home port. The Service also needs to expedite the acquisition
small boats for the NSC.
The Transportation and Infrastructure Committee felt strong
enough about these issues to include proscriptive language on
the National Security Cutter in the Coast Guard and Maritime
Transportation Act of 2011. The National Security Cutter is a
critically needed asset. The Service must identify ways to
mitigate the shortcomings in the near term, and fully rectify
them in the long term.
I know I speak for many, if not all of my colleagues, when
I say that I cannot support an acquisition program that spends
billions of dollars on so-called state-of-the-art assets, only
to find out they are not performing as promised. I understand
the Service has made several strides lately, and I want to
applaud the Coast Guard for taking those steps. However, since
precious time and money was wasted under the old Deepwater
program, I feel that we are now at a critical point where the
rate of decline and legacy assets has overtaken the rate of
progress in bringing new assets online.
I am very concerned that, unless the Coast Guard can get
this program back on track, the Service will not be able to
perform its critical missions. I know that the Service is
working hard to ensure that doesn't happen. I look forward to
hearing from the commandant on how these acquisitions are a
good investment for the taxpayer, and how we are going to get
the results that we were promised.
I want to thank the witnesses for being here today, and now
I will turn to Mr. Larsen.
Mr. Larsen. Mr. Chairman, thank you for convening this
morning's hearing to discuss the latest in a series of reports
released by the Government Accountability Office concern the
U.S. Coast Guard's major acquisition programs.
I appreciate the opportunity to hear once again from the
GAO and the Coast Guard on the progress that has been made to
recapitalize the Coast Guard's surface and air assets, and,
more importantly, to discuss the challenges that remain
outstanding since the subcommittee last visited this topic in
April.
In general, I want to commend Admiral Papp and the Coast
Guard for continuing their efforts to implement internal
reforms to improve the efficiency, transparency, and
accountability of its recapitalization program. As a sign the
Coast Guard has turned the corner, the Coast Guard reports
since April it has awarded four contracts totaling
approximately $728 million for major system acquisitions. These
contracts, which will provide hundreds of high-paying jobs for
U.S. shipbuilders will allow the Coast Guard to acquire a new
National Security Cutter and a new Maritime Patrol Aircraft to
provide enhanced capabilities for surveillance, interdiction,
and fisheries enforcement operations.
Additionally, these contracts will allow the construction
of 4 additional Fast Response Cutters, and 10 new Medium
Response Boats, which will improve the Coast Guard's marine
operations along the 95,000 nautical miles of U.S. coastline,
and strengthen the Coast Guard's capabilities to secure our
ports and our harbors.
In addition, the Coast Guard reports progress on several
other important capital initiatives. The third National
Security Cutter, the Stratton, was delivered when the Coast
Guard launched two new Fast Response Cutters. Also, vital
sustainment programs were completed for two legacy Medium
Endurance Cutters, which will improve their operational
effectiveness.
Additionally, the Coast Guard maintained its efforts to
upgrade its H-60 and H-65 helicopters, and expanded its
deployment of the rest of the 21 emergency response system to 4
additional sectors around the Great Lakes and in southern
California. Each of these accomplishments is a positive
development.
Notwithstanding this demonstrable progress, however, the
recent GAO report finds that several substantial challenges
remain with the Coast Guard's recapitalization program. These
challenges raise a legitimate question: Does the approved
program of record remain achievable?
When the Coast Guard began its recap program in 1996,
everyone recognized that the scale and complexity of replacing
or modernizing its aging fleet of over 90 cutters and some 200
aircraft was an unprecedented event in the Coast Guard's long
history. But as no less than 18 GAO reports and numerous
subcommittee oversight hearings in this and prior Congresses
has made clear, the Coast Guard's past oversight and management
of its major system acquisitions, especially of the $24.5
billion Deepwater program was ineffective. Moreover, this
deficiency has led to substantial cost overruns, shifting
baselines, design flaws, and delays in the delivery of new
assets.
I want to commend the former chairman of this subcommittee,
Congressman Elijah Cummings, for his determined efforts in past
Congresses to instill greater accountability and transparency
to this initiative, which is of critical importance to our
maritime security. GAO reports that the absence of baseline
estimates for several assets might drive up the overall cost
for major system acquisitions to over $29 billion. New
baselines, especially for the Offshore Patrol Cutter, could
push this estimate even higher.
The GAO also asserts that cost estimates and schedules
developed by the Coast Guard may be unreliable because the
Coast Guard has not adhered consistently with its own best
management practices. Additionally, the GAO raises concerns
about the viability of achieving a system-of-systems
capability, noting complications and false starts with the
development of command and control and communication
technologies generally known as C4ISR.
Also important: GAO states that the Service has failed to
conduct adequate operational testing and evaluation for the
assets that have been delivered. These findings raise valid
questions about achieving the long-term concept envisioned by
the former Deepwater program.
I look forward to hearing this morning from John Hutton,
GAO's director for acquisitions and management, to further
discuss these issues and other concerns contained in the new
report. I am also interested in hearing from Admiral Papp on
his views regarding the Coast Guard's progress in implementing
their internal reforms and what, if anything, the Coast Guard
intends to do to adjust its capital investment plan to better
correspond with what the Coast Guard can reasonably expect the
Congress to provide in appropriations.
Mr. Chairman, acquisition policy is not just a function of
a process. Our policies also are reflected in the budgetary
resources we devote to programs and in the attention we give to
emerging demands, such as the Coast Guard's need for new heavy
and medium polar ice-breakers in the Arctic. But before the
Congress appropriates any funds, agencies in the executive
branch must provide us with timely, accurate, and reliable
budget estimates. I share your frustration when the
administration does not make such information available.
Everyone in this room wants the Coast Guard to succeed. The
Coast Guard deserves the best vessels and aircraft that modern
technology can provide. The American public certainly expects
no less. If we hope to achieve the Coast Guard's approved
program of record for Deepwater, we must engage each other as
genuine partners and determine a common path forward. I hope
that this morning's hearing moves us in that direction.
Mr. LoBiondo. Thank you, Mr. Larsen. Our first witness
today is Mr. John Hutton, director of acquisition and sourcing
management for the GAO. Mr. Hutton, we welcome you and look
forward to your testimony.

TESTIMONY OF JOHN P. HUTTON, DIRECTOR, ACQUISITION AND SOURCING
MANAGEMENT, GOVERNMENT ACCOUNTABILITY OFFICE

Mr. Hutton. Thank you, Mr. Chairman. Chairman LoBiondo,
Ranking Member Larsen, and members of the subcommittee, thank
you for inviting me to discuss our July 2011 report, ``Action
Needed as Approved Deepwater Program Remains Unachievable.''
This is our latest in a series of reports over the past decade
where we have informed Congress and others not only of the
problems and uncertainties related to this large, complex
acquisition, but also of the many positive steps the Coast
Guard has taken to strengthen its acquisition management
capabilities as it assumed the systems-integrator role.
Today, I would like to focus my remarks by simply posing
three questions that we believe, if answered by the Coast Guard
and DHS, should help improve the overall recapitalization
efforts. First, what is the true cost of the current
recapitalization effort? Second, what are the assets and
capabilities the Coast Guard needs while considering fiscal
constraints? And, third, how can the Coast Guard manage its
recapitalization effort, given its expected funding levels over
the next several years?
With respect to cost, there are several factors that
preclude a solid understanding of the true cost of the program.
Over the years, we have reported on cost growth and as of May
2011, the total Deepwater program could cost as much as $29.3
billion, about a 20-percent increase over the past 4 years.
But further cost growth is looming because the Coast
Guard's current plans do not reflect all known updated costs.
This contributes to the approved 2007 baseline no longer being
achievable. For example, the Coast Guard has not developed a
revised cost estimate for the Offshore Patrol Cutter. That is
the largest cost driver in the 2000 baseline, at $8 billion.
Further, the approved baseline for the National Security
Cutter, which was revised in 2008, reflects a total acquisition
cost of $4.7 billion. However, our recent review of budget
documents found that the program may cost an estimated $5.6
billion, representing a 19-percent increase over this asset's
2008 revised baseline.
With respect to the second question, what assets and
capabilities are needed, we recommended in July 2010 that the
Coast Guard conduct a comprehensive review to clarify the mix
of assets required to meet mission needs within fiscal
constraints. While the Coast Guard's initial fleet mix analysis
provided insight on the performance of fleets larger than the
program of record, the analysis was not cost-constrained. The
Coast Guard undertook a second analysis that considered various
funding scenarios. However, we were told it would not assess
any mixes smaller than the current program.
In the meantime, DHS has conducted its own study to examine
alternatives to the planned cutter recapitalization. We
continue to recommend that DHS and the Coast Guard work
together, using the information contained in the three studies,
to help identify cost, capability, and quantity trade-offs.
With respect to the third question, DHS and the Coast Guard
are managing a recapitalization effort that is expected to cost
more than what its annual budget will likely support. For
example, Coast Guard officials said that they need up to $1.9
billion per year to support the approved baseline. However,
these officials expect actual funding levels to be closer to
$1.2 billion for these assets.
Coast Guard-wide support is required to reliably plan and
execute an achievable recapitalization program. Thus, this year
we recommended that the Coast Guard engage in an agency-wide
effort to ensure that recapitalization programs are funded
within the resource constraints. This effort should involve the
acquisition, resource, and capabilities directorates.
In commenting on our report recommendations, DHS stated
that the Coast Guard already does make trade-offs as part of
its annual budget process. However, under this budget process,
DHS and the Coast Guard have continued to face the problem of
approved acquisition programs not being feasible.
In closing, fiscal realities underscore the importance of
answering these questions so that more realistic budgets can be
submitted to Congress and the Coast Guard can better manage the
modernization of its ships, aircraft, and other supporting
capabilities.
Mr. Chairman, this completes my statement. I would be happy
to respond to any questions you have.
Mr. LoBiondo. Thank you very much. Your report declared
that the acquisition of Deepwater assets is unachievable with
the 2007 baseline. Can you tell us, or do you have any idea
what the Coast Guard is doing to prevent acquisition costs from
rising beyond the expected level?
Mr. Hutton. Well, I think one of the important things that
we pointed out in our report is that, as you gain more
knowledge and you see that your current baselines aren't
accurate, that you revise those as quickly as possible, get
them approved so you have a good handle on cost, schedule, and
other performance parameters.
We noted in the report that there are several assets--at
least two, in particular, the UAS and the OPC--which represent
about 35 percent of the dollars considered under the original
2007 baseline, and no baselines have been updated. So I think
there are issues, as it relates to keeping all your baselines
as accurate as the knowledge that you currently have. But also,
as our report mentioned, you need to have good life-cycle cost
estimates, good schedules. And I think that the best practices
that GAO used in looking at the Coast Guard's activities for a
couple of the assets showed that there could be some
improvements in those areas, and we had a recommendation
directed at that.
Mr. LoBiondo. We have--your report states that the Service
is not getting the full plan capability out of the National
Security Cutters delivered to this date. Do you know if the
Coast Guard has any performance metrics that prove that we are
getting greater capability out of the National Security Cutter
than the High Endurance Cutter?
Mr. Hutton. That's a great question, and we thought a lot
about that, just in terms of performance overall for the assets
that they are acquiring.
One thing we do note is that the assets have not gone
through operational test and evaluation. That is a very key
phase of the acquisition process. That is where you help ensure
that when you establish your mission needs statement up front,
when you establish your operational requirements document, when
you establish your baselines, that you have traceability
through all those, that you're going to test it in an
operational situation and be able to assure yourself that what
you are buying is actually what you thought you were buying,
and is going to meet the mission gap that you were hoping to.
Mr. LoBiondo. Mr. Larsen.
Mr. Larsen. Mr. Hutton, on that point can you be more
specific about what the implications for those assets are for
not completing initial operating and testing?
Mr. Hutton. Well----
Mr. Larsen. Initial operational testing.
Mr. Hutton. Right. They are scheduled--several assets are
scheduled to go through initial operational testing within the
next year or two. Those are planned. I have every reasonable
expectation that the Coast Guard is going to follow through
with those processes. There is a certain appropriate time when
you do that. They are working towards that. So it's not
necessarily that it's something they're not considering, not
caring to do. They know they need to do it. And those are going
to be scheduled within the next year or so.
But again, I think that's where you get some insights. The
Coast Guard does a lot of different kind of testing along the
way, operational assessments and things of that nature. That's
where they gain some insights, early insights. They try to take
corrective actions where necessary. But I think, ultimately,
you would like to see the results of the initial operational
test.
Mr. Larsen. Does the Coast Guard have a separate
operational test and evaluation units, much like the Department
of Defense does, or is it tied in with their acquisition?
Mr. Hutton. Under the process, they have officials that are
involved in developing the test and evaluation plan. But I
think what's also important is that the Department of Homeland
Security, over the last couple of years, has really stepped up
and refined their departmental processes. They have submitted a
new directive on test and evaluation probably a couple years
ago, and I would suspect that the Coast Guard's plans are going
to be reviewed by the Department as another set of eyes, to
make sure that they are testing the things that they should be
testing, and that the way they're conducting the tests you can
expect a reasonable answer to the questions that you have.
Mr. Larsen. Now, we know on this committee from previous
hearings--not just this year, but over the last several years--
this--the Deepwater program, this acquisition program, has been
under a lot of scrutiny. We have put it under a lot of
scrutiny. We have actually changed how the Coast Guard is
organized to implement this. You know, we went from an outside
integrator and acquisition oversight to inside.
How much of that do you think that--how much of this change
do you think is contributing to this cost growth? In other
words, is this a hiccup, but a big hiccup, in the steps to get
to where we have wanted to go with the acquisition process in
the Coast Guard?
Mr. Hutton. Well, I personally have been tracking this over
the last 5, 6 years. I have seen what was going on while they
were part of the systems integrator. And then I was also here
when the Coast Guard decided to pull away and start beginning
to manage their assets on an asset-by-asset basis.
We have commented in past reports how the Coast Guard, in
fact, had taken some steps to realign their directorates. They
had a blueprint for acquisition improvement, which had a lot of
key steps. That was based on a GAO framework for, basically, a
best practice of an acquisition organization. So, we saw that
they were taking a lot of good steps.
Two points, though. One, it is hard to say for sure, but
what you're seeing now is, on one level, a result of the fact
that they now are looking at these systems on an asset-by-asset
basis. They are not relying on the contractor to do a lot of
things. I think they are getting a lot more insight on these
assets than they may have had 3 years ago and probably wouldn't
have, to this day, if they were still under that model, in my
opinion.
So, what you're seeing is you're getting a lot more
insights probably earlier--well, in this case maybe later,
because----
Mr. Larsen. Right.
Mr. Hutton [continuing]. Of the way it worked out. But
they're getting insights now that they didn't have before. But
the key always comes down to, if you have better knowledge--and
you want knowledge as you're going along the acquisition
process--the key is what are the individual decisions you're
making as you're going along, and are you putting the
acquisition program and the acquisition directorate on the best
footing to have success, by making sure that you have resources
that match what you're trying to do.
Mr. Larsen. Yes. Judging from the criticism of the handling
of the fleet mix analysis, and the optimistic funding
projections in the Coast Guard's capital investment plan, in
your estimation is the Coast Guard's acquisition directorate
adhering to its own policies establishing their blueprint for
acquisition reform?
Mr. Hutton. Well, that is an acquisition directorate
blueprint. And what we noted in our report is that while they
laid out something that we thought made a lot of sense, such as
looking at what the needs are and the funding requirements, the
acquisition directorate needs then to interact with the
resources people and the capabilities people.
And that's what we were trying to do, that they better
connect or better yet, make decisions about what trade-offs
have to be made, given the available funding. Once that
decision is made, then plan realistically in future budgets, so
that you don't have a lot of churn over time. If you will
notice, in their 5-year capital investment plan, where we
looked at it over a series of years, you could see where one
year they wanted to spend their money a certain way, but each
year that mix of what they're going to put on aviation assets
versus surface assets changed, mainly because of some of the
things they had to deal with.
So, it wasn't really going to help them have a smooth
acquisition, because they were planning for more money than
what they really were going to reasonably get.
Mr. Larsen. And finally, if that's the case, you know, as
recently as, you know, a couple of years ago we were expecting
a $24.5 billion program over a period of years. And you are now
estimating, at a minimum--you are seeing, at a minimum, $29
billion, based on what happens with Offshore Patrol Cutter.
This program seems--at least right now, without some
changes--seems to be headed towards spending up to a certain
amount until the money is gone, but the Coast Guard still
hasn't built out everything they wanted. That's where this
seems to be going.
Mr. Hutton. Yes. And I think, in part, that is why our
title was stated that way. I think there is an issue that they
need to address, as it relates to here is what we have said
we're going to buy, recognizing that even the current baseline
may not fully represent what we think ultimately we're going to
need to carry out this program.
And our concern is that you need to basically make those
priority trade-offs now. And then make sure that your budget
submissions are representative and linked to what they think
they can buy.
I do want to mention, though, the thing that's hard for us
to get behind is the relationship between when a Coast Guard
budget goes to the Department, when the Department sends the
budget to OMB, when it goes to you all on the Hill, the ins and
outs. We don't have good visibility into that. So I will be
open for that.
Mr. Larsen. What was the original estimate on this program?
Mr. Hutton. Well, I think it depends. The pre-9/11
estimate----
Mr. Larsen. All right.
Mr. Hutton [continuing]. I think was in the $14 billion
range. Is that right? Seventeen billion. I stand corrected.
Mr. Larsen. Pre-September 11, 2001.
Mr. Hutton. Yes, and I think even if you go back in the
late 1990s, you might find another estimate in a GAO report--
but, of course, you know, a lot has changed.
Mr. Larsen. Right.
Mr. Hutton. Missions and requirements. But it was less than
that.
Mr. Larsen. And I think generally--not--I don't want to
speak for all of Congress, but generally, when we looked at the
program inflating up to $24 billion, it was obviously an eye-
opener, a bit of a shock, but there was some understanding and
some give-and-take between the Coast Guard and Congress about,
well, we understand what the mission requirement is, post-9/11.
But at some point now we are getting--we are looking at
north of $29 billion, and we are back to scratching our heads.
And it's not a place we would like to get back to.
Mr. Hutton. Well, again, I would like to just say, if I
could, the key is do you have good information to make good
decisions. And I think, up until now, we are seeing them get
more insights into what they are actually buying. But as our
report notes, there are still some areas that we are going to
be interested in seeing, what the new estimates are going to
look like. And then, to what extent there are going to be any
trade-offs. Because, as our report mentioned----
Mr. Larsen. Right.
Mr. Hutton [continuing]. There are several studies that we
understand are to be used to consider those trade-offs. But
it's early; we haven't seen what those are.
Mr. Larsen. Yes, good. Thank you, Mr. Chairman.
Mr. LoBiondo. Master Chief Coble.
Mr. Coble. Thank you, Mr. Chairman. Mr. Hutton, it's good
to have you with us.
Mr. Hutton. Thank you.
Mr. Coble. I was going to put this question to the
commandant, but I will run it by you, as well. During previous
testimony by Secretary Napolitano, she emphasized her
commitment to building eight National Security Cutters. The
fiscal year 2012 budget, you will recall, request included a
projected $77 million to complete the fifth National Security
Cutter. But the ship was funded in its entirety, I'm told, in
fiscal year 2011.
Since that ship's funding has been secured, what are the
Coast Guard's plans, if you know, during the fiscal year 2012
for National Security Cutters 6, 7, and 8?
Mr. Hutton. I believe, as the budget is going through the
process, your characterization is the way I understand it.
Unless Congress were to put some money in the budget that the
Coast Guard might not have asked for, I don't expect you would
see anything for 2012 if the bills pass the way they are
currently being considered.
I also think you are asking about buying the eight NSCs.
And I think what I find interesting is when you look out at the
2012 through 2016 range, you will see in 2015, in their capital
improvement plan--investment plan, you will see that there is
money in there to buy three surface ships, three classes: the
OPC, NSC, and the FRC. And we point that out because that is
the first time you will see three major surface ships being put
into the budget for the same year. And what I think is in that
particular year is a little over $2 billion.
Mr. Coble. I thank you, sir. No further questions. Thank
you, Mr. Chairman.
Mr. LoBiondo. OK. Rick, do you have anything else?
Mr. Larsen. Thank you, Mr. Chairman. Just with regard to
the system of systems and your thoughts on that, how far is the
Coast Guard from achieving this concept than it was originally
proposed? And is it possible for the Coast Guard to deliver
that capability within these budget constraints?
Mr. Hutton. Well, that's a great question. As the report
points out, there are a lot of questions we still have on the
system of systems, Mr. Larsen. We noted in our report that some
of the newer assets like the NSC, the MPA, and the HC-130 right
now are not in a position to fully share data.
One thing that we do point out, is this is a very complex,
integrated-type system. When they decided to go in-house with
the acquisition, one of their biggest challenges was to get
insights into what the prior systems lead integrator was doing,
what software and technical data they had, to gain a good
understanding of where they were headed.
But there are still some major decisions to be made. For
example, there is an approved baseline. I think it was February
2011. But even when that was approved by the Department, it's
our understanding that it was essentially out of date,
particularly because of some questions about the life-cycle
cost estimate.
So I just think there is a lot of open questions. That is
one area that we got into a little heavier this past year than
we have in the past. And I would expect that, in doing any
future work, we would continue to look at that issue. Because,
as you know, that was the key piece to integrate all the
assets, surface and air and land, that's going to allow you to
get maybe a better outcome, leverage all the collective
capabilities and get more. And that's where some of the trade-
off comes in with the assets, as well, the quantity of assets.
Mr. Larsen. OK. You're right in pointing out that's exactly
why you do these kinds of things with the--on the
communications side, the technology side. You integrate them,
and you basically multiply----
Mr. Hutton. You have a multiplier.
Mr. Larsen. You multiply your capability, as opposed to
just having a few ships out there, a few boats out there, a few
fixed-wing or rotor aircraft in the air.
So, I would look forward to your continuing to look at that
aspect of this a little more in-depth.
Mr. Hutton. Thank you.
Mr. Larsen. Thanks. Thanks, Mr. Chairman.
Mr. LoBiondo. Well, Mr. Hutton, I want to thank you very
much, and I also want to thank your team for helping us better
understand how this is coming together or not coming together,
and what we need to focus on. I know you have spent an enormous
amount of time and energy and years on this, and we just want
to tell you how very much we appreciate it.
So, we thank you very much and----
Mr. Hutton. Thank you, Mr. Chairman.
Mr. LoBiondo. And we will now switch over to our second
panel, which will be Admiral Robert Papp.
Admiral Papp, I want to thank you for being here today. We
also want to thank you for your leadership on this issue. Very
challenging issue. I want to assure you that the subcommittee
supports the acquisition goals of the Service. Nothing we would
love to see more than to have this all completed.
Legislation that I introduced was recently reported from
the transportation committee, authorizing funding for the Coast
Guard's acquisition at a level that is significantly higher
than was requested by the President or provided by the
appropriators. We did so because we understand the critical
importance of recapitalization, the program, and we want it to
succeed.
We are looking to you to continue the progress made by the
previous commandant to get the ship on the right course,
address remaining concerns, and move forward effectively and
efficiently. And once again, I want to thank you for being
here. And you are recognized.

TESTIMONY OF ADMIRAL ROBERT J. PAPP, JR., COMMANDANT, UNITED
STATES COAST GUARD

Admiral Papp. Thank you, Mr. Chairman, for welcoming me
here. It is great to be back here. Ranking Member Larsen, thank
you, sir, as well. And distinguished members of the
subcommittee, it's an honor to appear before you today to
discuss the Coast Guard's top priority: recapitalizing our
fleet of cutters and aircraft.
I welcome the opportunity to update you on our acquisition
efforts and discuss the GAO's report. But more importantly, I
want to speak to you about how the ships and aircraft we buy
today will not just take shape, but in large part will define
the Coast Guard's next 50 years of capability, and to discuss
their value to America.
Let me begin by expressing my complete understanding and
full appreciation for the historic times that we are in, and
for the challenges both you and the President face. Without
question, the Nation faces fiscal challenges that are causing
us, all of us, to confront some of the toughest choices that we
faced in our respective public Service roles. In my case, these
are some of the toughest choices I have confronted in nearly
four decades of Coast Guard service.
But I must admit I was a bit discouraged by the title of
the hearing: ``Protecting the Taxpayer from an Unachievable
Coast Guard Acquisition Program.'' I want to assure you, Mr.
Chairman, that every Coast Guardsman, including our acquisition
professionals, knows that protecting Americans from maritime
threats is job number one.
But our Coast Guardsmen cannot fulfill this duty without
the tools they need to do the job. So I welcome the opportunity
to discuss our acquisition program, a portfolio of projects
designed to protect Americans from maritime threats, and to
discuss why and how this project is not only achievable, but
necessary.
As a Service chief, it is my responsibility and duty to
convey my best military advice. For the Coast Guard, this
subcommittee serves as our de facto House Armed Services
Committee. Just as my fellow Service chiefs report to the HASC,
it is my job to advise you on what my Service needs in order to
provide security and protection that our taxpayers deserve. We
have been fortunate throughout the years to have members of
this subcommittee who understand this and have given us their
full support.
In the midst of an economic crisis in the 1930s, the
President and the Congress chose to invest in America's Coast
Guard, building a class of seven new major Coast Guard cutters.
Why? Because America needed capable multimission ships to meet
both its known maritime challenges, as well as its unknown
future challenges.
These seven major cutters carried out missions never
imagined in their original concept of operations, such as World
War II convoy patrol, combat operations, and weather stations.
They were able to do this because leaders foresaw that capable
ships with speed, endurance, and versatility were a sound
investment against an uncertain and what proved to be a
menacing half-century to come.
The last of these cutters was decommissioned in the mid-
1980s at over 50 years of age. Then, as now, building
multimission cutters was not merely a budget decision, it was a
leadership decision, a leadership decision that required
vision, fortitude, and courage.
The current class of High Endurance Cutters, the 378s, were
built in the late 1960s. When introduced, they were capable
ships with space, endurance, and speed. They too were used for
missions barely imagined, such as combat missions in Vietnam,
and transitioning from ocean station program duty to prosecute
the new threats of maritime drug trafficking and illegal
migration. But this fleet is now well in excess of 40 years
old. It is antiquated, expensive to maintain, and unreliable to
operate.
What my shipmates and this country desperately need is a
modern, reliable fleet of vessels, and aircraft equipped with
effective command and control and communications systems to
ably perform our expanding maritime missions. And that, members
of the subcommittee, is why recapitalizing this fleet is my
number one priority. And I reaffirm that the Coast Guard
requires at least 8 National Security Cutters and 25 Offshore
Patrol Cutters, the approved project baseline.
This subcommittee's oversight continues to play a vital
role in our recapitalization. So do the GAO's thoughtful
insights. The GAO report notes that we have already instituted
reforms, and we continue to make significant progress. As our
response to the GAO report confirms, we take its
recommendations seriously. And I am personally committed to the
continued improvement of our acquisition processes and program
management.
But it is also important to note that the GAO's report
analyzed data that was collected over a year ago. So today I
want to focus not where we were, but where we are. And I am
proud to report to you that we are making real progress.
On September 2nd, we accepted the on-time delivery of the
cutter Stratton, the third National Security Cutter. The
fabrication of the cutter Hamilton, NSC number 4, started in
August. And we awarded a fixed-price contract for the cutter
James, NSC number 5, just this last month. These successes
reflect benefits we have realized from stable requirements,
rigorous adherence to our acquisition processes.
Of note, the recently awarded NSC number 5 costs almost
exactly the same as NSC number 4, which is remarkable, when you
consider the enormous inflation in material costs between the
award periods. This demonstrates that the NSC program has
turned the learning curve, and has tremendous positive
momentum, momentum that must be sustained.
The NSCs Bertholf and Waesche are both now operational.
Initial mission results are impressive. During Bertholf's first
Alaska patrol this spring, she demonstrated superior sea-
keeping ability while launching her boats, recovering her
helicopters, and conducting over 40 fishery boardings in the
treacherous Bering Sea. Last year, her enhanced C4ISR
capabilities were instrumental in interdicting a drug-smuggling
vessel carrying a multiton load of cocaine.
In April and August, the first two Fast Response Cutters,
the replacement for the venerable Island-class patrol boat,
were launched. Production of hulls 3 through 8 are underway,
and we just exercised a fixed-price contract for the production
of hulls 9 through 12. We have also delivered 12 of 36 HC-144
Maritime Patrol Aircraft, and we have 3 more on order. And I
could go on and on about the successes of these ships and those
aircraft.
Are there challenges we must overcome to deliver the full
set of capabilities and mission results that the President, the
Congress, and the American public rightly demands of our Coast
Guard? Certainly. But our dedicated and professional
acquisition directorate has made great strikes in identifying
and correcting gaps between projected and realized capability.
But it is also clear America needs these capabilities.
These ships, boats, and aircraft will assist our crews in
defending our homeland against maritime threats for the next
half-century. Can we attain the program of record? I submit to
you that this is the very least the Americans will demand of
us.
Unachievable? I think not. We have stable prices and
requirements. We simply need the courage, foresight, and
conviction to move forward in recapitalizing our Coast Guard in
order to protect our vital maritime interests, interests which
impact every American.
I want to thank this subcommittee for the rigorous
oversight that you have given us throughout the years on this
project. I don't deny errors, mistakes, trying to climb a very
steep learning curve in executing this project. But I want to
reconfirm our commitment for doing this right. And while I
respect and admire everybody's responsibilities, whether it is
GAO holding us accountable for proper practices, the Congress
giving us its proper oversight, it is my job to come up here as
the leader of the Coast Guard and give you my best military
advice on what we need to carry out our missions for the
country.
So, thank you for the opportunity, sir, and I am ready to
answer your questions.
Mr. LoBiondo. Well, thank you, Admiral Papp. I mean there
is no daylight between what you would like to see and your
vision, and what we would like to see for the men and women of
the Coast Guard. But some of these findings require a little
probing, a little asking, a little clarification as we move
through this.
One of the things I want to focus on a little bit is where
we're bouncing around with these numbers. There was a GAO
report that noted an annual appropriation level of about $1.2
billion. There is an assumption that maybe to do the program we
need $1.9 billion. Or maybe it's $1.7 billion. The legislation,
as I mentioned before, that I introduced, is $1.5 billion for
the next 3 fiscal years, because the highest level of
appropriations thus provided for the program, and I felt that
it was the most robust and realistic number that was achievable
in the current budget climate, which I don't have to remind you
is pretty tough.
Can you tell me what the current value of the Coast Guard's
capital assets are: cutters, small boats, aircraft, et cetera?
Admiral Papp. Yes, sir, I can, because, as you know, we
have also, at the same time as improving our acquisition
programs, we have also been improving our audit programs, as
well, as we are being held to new rules.
We have done a full capital review of the entire Coast
Guard. And when I say our capital assets come out roughly $30
billion, having learned a little bit about this, that also
reflects depreciation. In other words, that doesn't reflect the
replacement value of the ship's aircraft and everything that we
have. It's just that the current evaluation of all our capital
assets is about $30 billion. Obviously, it would cost much more
to replace all those ships and aircraft.
Mr. LoBiondo. Can you give us your take on what percentage
of value must be invested each year to maintain current levels
of effort, and to allow the Coast Guard to fully carry out its
missions?
Admiral Papp. I think I can, Mr. Chairman. Actually, in
discussions and looking at our budget--and I will give you
rough numbers here--what we do now is we have to live within
the constraints of--we have been averaging about $1.4 billion
in acquisition money each year.
If you look at our complete portfolio, the things that we
would like to do, when you look at the shore infrastructure
that needs to be taken care of, when you look at renovating our
smaller ice breakers and other ships and aircraft that we have,
we have done some rough estimates that it would really take
closer to about $2.5 billion a year, if we were to do all the
things that we would like to do to sustain our capital plan.
So, I am just like any other head of any other agency here.
At the end of the day we are given a top line, and we have to
make choices and trade-offs. And basically my trade-offs boil
down to sustaining frontline operations, balancing that with
trying to recapitalize the Coast Guard. And there is where the
break is, and where we have to define our spending.
Mr. LoBiondo. One of the things that we are trying to
understand--and it is challenging to sort of get our arms
around what the accurate information is--but what level of
mission execution would the Coast Guard be able to carry out if
the appropriation were, say, $1.2 billion versus $1.9 billion.
Because we are obviously the authorizers, the
appropriators, have to have a case made. We have a concern
that, based on some of the things they have seen, they may try
to slice and dice a little bit harder than they have. So this--
the question is posed to try to be able to frame an argument
for mission execution that is necessary.
Admiral Papp. Well, I can tell you, sir, that right now,
for the fiscal year 2012 budget, the President's budget
requests approximately $1.4 billion. It was very tough for us
this year, as we analyzed our budget, and we tried to strike
that balance between mission execution--in other words,
maintaining frontline operations--and still continuing on our
acquisition project baselines.
And we are able to keep our frontline operations going
within the budget, but we had to make some very challenging
choices in terms of distribution of resources within our
acquisition accounts. In other words, in some of the projects
we might have to choose only the minimum order quantity.
Obviously, if you can order the maximum order quantity for any
given year, you gain the benefits of economies of scale by
ordering more in an individual year.
So, it's just a balancing act within that acquisition
appropriation, in terms of numbers of ships, numbers of
aircraft. And those are the tough decisions that we are having
to make trade-offs on.
Mr. Larsen. Thank you, Admiral, for coming today. The
current baseline is at $24.2 billion, and then--but the GAO
report, as you know, has a new overall baseline in its view
of--estimated at about $29 billion. And I think, from our
testimony and the report, that doesn't include the Offshore
Patrol Cutter, so maybe it would be north of there.
Can you talk about some of the factors that have
contributed to that--about 20-percent cost increase in the last
4 years?
Admiral Papp. Yes, sir. Part of what has contributed to
that cost increase is we are doing our job better now. I will
be the first to admit that in the late 1990s we had reached a
point where we had depleted most of our acquisition
professionals within the Coast Guard. We didn't have a lot of
large projects going on. We had a very small acquisition
budget. We had been working for years to start what was then
called the Deepwater project.
September 11, 2001, changed that equation. And all of a
sudden the money started coming in. And people talk about
analogies of trying to build an aircraft while you're flying,
or trying to build a ship while you're sailing. That's exactly
what we were doing within our acquisition community inside the
Coast Guard. In part, that's what necessitated having a lead
systems integrator, basically hiring people to run the project
for us as we tried to build up the capacity within the Coast
Guard.
Mr. Larsen. Right.
Admiral Papp. So, when it became evident that we should
take on the role of leading this, as I think Mr. Hutton
described, we started our blueprint for acquisition reform.
That was approximately 5 years ago.
I am intimately familiar with that, because I was chief of
staff of the Coast Guard at the time. And then Rear Admiral
Currier was the chief of acquisitions. And he did an
outstanding job in leading that effort to build up our
acquisition workforce. And that continues today. He is now on
the job as the deputy commandant for mission support, and is
supervising--continuing to supervise our acquisition reform.
We got about the business of hiring good people, some
people we hired away from the Navy to bring them in, to give us
an increase in expertise within our acquisition community. And
then we set about coming up with training programs for our
people. And what I would say is our people are good now, and
they know how to take very rigorous reviews of costs, take into
account all the costs that are out there. And what we have
found is there were some costs that we didn't account for.
There were other things that complicated, such as Hurricane
Katrina, which basically shut down the shipyard in Pascagoula
for a time, delayed deliveries. There was our own changes to
requirements that occurred after September 11, 2001, that added
to the cost, as well, culminating in a 2007 review which showed
the initial increase. And what I would say is we are working
very hard to make sure that we have revised APBs and costs. We
are working them with the administration right now.
And I fully recognize that the OPC, the Offshore Patrol
Cutter, is going to be a major contributor. But when I came in
as commandant, one of the first things we did was we took
another review of the requirements on that ship, and we
redirected our philosophy to say that the number one driving
factor is going to be affordability. And we have, in fact, even
reduced some of our threshold requirements, getting them where
they're still acceptable for carrying out Coast Guard
operations, but keeping into account that that ship is going to
have to be affordable.
So, I can't sit here today and tell you that's not going to
increase. Obviously, we are working very hard to stay within
the numbers where we can. But I will be completely forthright
and honest with you, as we determine what those numbers are
going to be.
Mr. Larsen. Would you say on the OPC that GAO is in the
ballpark, in terms of its contribution to driving----
Admiral Papp. Well, I--yes, sir. I think they are
definitely within the ballpark, and I think that it's always a
challenge. We are basing things on conditions as they exist
right now. So you can pick a figure and, if it's reasonable,
it's in the ballpark. But what conditions are going to change
between now and when we start cutting steel on that project?
What unforseen things are going to happen in the country?
What's the price of steel going to do during that period? There
is always going to be changes; that's the one thing I have
learned from studying the acquisition process.
Mr. Larsen. So then, is--at what point does the Coast Guard
then look at realigning the budget projections in its capital
investment plan to the level of funding that you're receiving?
Or does this continue--does the plan continue to get pushed to
the right on the spreadsheet?
Admiral Papp. Well, sir, I hope it doesn't get pushed to
the right, because the further you press it to the right,
that's another contributing factor to costs going up.
What we have got right now, at least for the NSC, for MPA,
for the FRC, we have stable programs. We know what the costs
are. We are not changing our requirements. And, really, when
you look at standard acquisition, there is this triangle of
cost, performance, and schedule. We are controlling the costs
now, we know what they are. We know what the performance is
that we want. It's the schedule that will drive any cost
increases, because the further you drive the schedule to the
right, the prices will increase.
So, I am trying to make the effort to build the things we
need as fast as we can. I fully understand there is fiscal
constraints within our Government. But it's my job, as the
commandant, to tell you what we need, and that the faster we
build them, the lower our costs will be in the long run,
because we are able to decommission aging costly assets and get
a better price for the new assets if we build them quicker.
Mr. Larsen. So, are you approaching, though--are you
approaching your platform budget different than you are
approaching your systems budget? Because your time-cost-
performance triangle might apply to the ships, the boats, the
aircraft, but it doesn't seem to apply yet to your--the C4ISR
systems, because the integration that the Coast Guard has
proposed in the past doesn't seem to be even near caught up
with where you are in building actual platforms.
Admiral Papp. Well, I think--sir, I think we are moving
ahead.
Mr. Larsen. Are you moving ahead from a place that's
behind, though?
Admiral Papp. Well, one of the challenges I think we all
face, if you look at--I don't know what number iPhone is out
there today, I think we're up to number 5, and they're already
talking about number 6.
Mr. Larsen. Tomorrow.
Admiral Papp. Technology just continues to evolve faster
than the budgetary process or even the engineering processes
that we have. The things that we envisioned 10 years ago when
we started thinking about this system of systems, putting these
ships linked with aircraft and shore bases, is obsolete
technology now, as we envisioned it then. It continues to
evolve, it continues to improve.
On a daily basis, our technicians within the Coast Guard
are making incremental improvements to our C4ISR systems in our
legacy assets and in the new assets to optimize--maybe not get
to the optimal, but to optimize what we have, what we have
available, so that we can communicate between those assets. And
I think we are doing a pretty good job on it, as is
demonstrated by some of the cases we have prosecuted with our
new AC-144, vectoring surface assets to interdict drug
smugglers. The National Security Cutter, in its ability to
communicate with Maritime Patrol Aircraft and other cutters,
and its small boats--we are making those incremental
improvements, and they are improvements. They might not be as
fast as we would like them to do, but we are doing the best we
can.
Mr. LoBiondo. Master Chief Coble?
Mr. Coble. Thank you. Thank you, Mr. Chairman. Admiral
Papp, good to have you back on the Hill.
Admiral Papp. Thank you, sir.
Mr. Coble. Admiral, during the previous testimony with
Secretary Napolitano in March, she emphasized her commitment to
building eight National Security Cutters. The fiscal year 2012
budget request included a projected $77 million to complete the
fifth cutter. But the ship was funded in its entirety in fiscal
year 2011. Since that ship's funding has been secured, what are
the Coast Guard's plans during the fiscal year 2012 for
national cutters 6, 7, and 8?
Admiral Papp. Well, first of all, I need to express once
again my appreciation to the Congress for putting the full
funding for National Security Cutter number 5 into our fiscal
year 2011 budget. That will get that ship out there at a better
price and sooner, to start serving the American people.
The challenge continues to be getting six, seven, and eight
constructed. And right now we have--in our capital investment
plan we have plans to put number 6 in the fiscal year 2013
budget, 7 in the fiscal year 2014 budget, and 8 in the fiscal
year 2015 budget. And right now we are constructing it that way
because of OMB circular A11, which requires full funding for a
project in any given year. It's a little different constraint
that we are dealing with right now, and we are adjusting our
capital investment plan to be able to accommodate that.
Mr. Coble. Thank you, Admiral. Admiral, OMB is insisting
that the Coast Guard comply with full funding requirements
under OMB circular A-11 for the National Security Cutters and
other Service acquisition projects. This means, as I understand
it, the Coast Guard must budget for and receive funds to cover
the cost of long lead material, construction, and post-
construction activities prior to awarding a contract for
production of a new asset.
Let me put a two-part question to you, Admiral. What's the
impact of the OMB policy on the cost of delivery schedule for
the NSC program? And what is the impact of this policy on the
Coast Guard's acquisition program? And will trade-offs be
necessary?
Admiral Papp. Well, sir, as I stated, it--the quicker you
can spend the money, have the money available, the--it affects
the cost of the ship.
Generally, the cost of the ship will be less, the earlier
you can build it. And having long lead materials allows a
shipyard to make certain assumptions about the stability of the
program, certain assertions that, yes, in fact, we are going to
be building six or seven or eight, and they can plan, they have
to make management decisions as it relates to their workforce,
to buying supplies and long lead materials, et cetera, which,
if they have stability in schedule, they can give you a lower
price. And I think we have confirmed that in what we did this
last year, in keeping number 5 at virtually the same price as
number 4.
We have, in the past--OMB has allowed us to spend long lead
money, and it has generally provided--produced lower prices for
a ship because the shipyard is able to get them, and it gets
the ship out there faster. We had $77 million in the fiscal
year 2012 budget, which was intended to be money to complete
number 5, as I said earlier. We are grateful that the Congress
decided to put all the money for NSC number 5 in the fiscal
year 2011 budget.
The Senate currently has a mark, or kept the $77 million in
their mark, and designated that as long lead materials for NSC
number 6. If that stands, and if in conference the House works
with the Senate on that, what that does, it--I don't have
authority to spend on long lead. I would have to go to OMB and
get an exception to A-11 to be able to spend long lead money on
number 6.
Mr. Coble. Thank you, sir. Mr. Chairman, my time is about
to expire. Can I have one more question?
Mr. LoBiondo. For you, certainly.
Mr. Coble. Thank you, sir. Admiral, finally, I am told that
the Coast Guard has made several successful acquisitions since
our hearing earlier this year in the spring--April, I think.
What are some of these successes, A. B, were any of the
successes achieved ahead of schedule? C, were they achieved for
lower cost than originally expected?
Admiral Papp. Well, I think that the biggest success,
because it means the most in terms of value to the Coast Guard
and value to the taxpayer, are the National Security Cutters.
First of all, national security number 3, the Stratton, while
it wasn't, sir, delivered ahead of schedule, it was ready to go
early, it passed builder's ship trials and acceptance ship
trials with flying colors. And this is not just a biased Coast
Guardsman saying this. We bring Navy people on board to
evaluate the ships. And as you might imagine, sir, as a
Coastie, the Navy guys don't cut us any slack.
Mr. Coble. Yes.
Admiral Papp. So, they were astounded, though, at the
quality of the ship, the lack of discrepancies, and the vast
improvement that had been demonstrated by the shipyard from
hull number 1 to hull number 3. So, delivering that on time
within the cost designated is, I think, a very significant
event.
The other very significant thing is our acquisition force
now has taken over that project. And heretofore the first three
ships were acquired under a cost-plus contract. What we needed
was predictability and stability in pricing, and what we did--
it was very hard, but we hammered out a fixed price contract
for number 4. And many people were amazed, first of all, that
we were able to do that. But then people were even more amazed
that, within the same year, we were able to negotiate and
execute a second fixed-price contract for hull number 5 when
Congress gave us that money.
So, those are the major accomplishments. But I would say
also the Fast Response Cutter, our new patrol boat, two of them
are in the water right now, and we are anxiously awaiting
delivery later this year. We have hulls 3 through 8 that are
under construction, and we have just awarded a fixed-price
contract for three more. That's another success. And our
Maritime Patrol Aircraft, as well, we are taking deliveries on
them, and they are performing outstanding.
Mr. Coble. Thank you, Admiral. Mr. Chairman, I yield back.
Mr. LoBiondo. Frank, do you have any questions?
Mr. Guinta. Not at this time, Mr. Chairman.
Mr. LoBiondo. OK. Rick?
Mr. Larsen. Admiral, with regards to the fleet mix
analysis, will phase two include an analysis of any trade-offs,
not just between assets within the Deepwater, but trade-offs
among major system acquisition programs? And when can we expect
to see that?
Admiral Papp. The fleet mix analysis number 2 is still
being worked through the Department, through the
administration. And I am not sure what timeline has been
designated for getting it up here. Obviously, I will work as
hard as I can to get it up here as quickly as possible.
The frustration I feel with fleet mix analysis and other
analysis and other evaluations is none of them have refuted the
basic assumption of the need for 8 National Security Cutters
and 25 Offshore Patrol Cutters. All of these studies continue
to point towards that is the right number to provide the
services we need for our country.
In fact, the fleet mix analysis one, which we all
acknowledge is an unconstrained study, demonstrates, that to
carry out all our missions, we need more ships. What I will say
today is I am satisfied with the acquisition project baseline,
as the commandant, that those are the numbers of ships that I
need to carry out the missions. And we need to move forward
smartly with that. But we will continue to provide whatever
documentation and work that through the administration to get
it up here to substantiate what we need for our Service.
Mr. Larsen. The conversation about the project baseline is
one thing, but this gets back to the crux of the intent, I
think, of the title of the hearing, which is the project and
the platforms are one thing, but there is a certain dollar
amount out there today.
Admiral Papp. Right.
Mr. Larsen. And at what point, then, does this approved
program of record, you know, become unachievable? That is the
question we are trying to answer, because we have to answer
that eventually. And you want to answer that before we answer
it.
Admiral Papp. Right.
Mr. Larsen. At some point. So, can you give me a
perspective about decisionmaking that will have to take place
within the Coast Guard about the platforms that you want under
Deepwater versus what dollar amount is available over time to
accomplish that? Again, short of pushing that spreadsheet out
to the right, and adding costs to the program as a result.
Admiral Papp. Right. Well, Mr. Larsen, I--as I was sitting
up last night thinking about all that could be asked today and
really thinking deeply about this project, one of the things
that strikes me is probably--not probably. I would say is one
of the things we had to do when we were trying to gain the
attention--you know, remember, this project goes back to the
1990s. And there was a time when, in the mid-1990s, we were
reduced by about 6,000 people. We were cutting back on
frontline operations, and we couldn't get any money to
recapitalize ships. The truth of the matter is 9/11 turned this
around.
But our strategy, the way we were marketing this--and I
think rightly at the time--was this system of systems approach,
which then drives the need to quantify what's the cost of this
system. So, whenever anything changes with the system now we
are rightly criticized for increasing costs.
What I would suggest is we have gone in the right
direction, we have disaggregated this thing that was called
Deepwater, and we have discrete ship-building functions,
aircraft functions, and others. And we are more adept now at
identifying what the real costs of those projects are, which is
contributing to, once again, that total acquisition project
baseline cost. And what we really need to do is focus on the
discreet elements of it.
But more importantly than that, what we have done is we
have said, ``OK, what's the cost of this thing going to be at
the end of the 30 years, or whatever it is that it's going to
take to recapitalize?'' And I would suggest that perhaps a
better way to look at that is this discussion that we had up
front, which--we are an enterprise. We have a capital plant in
the Coast Guard that requires renewal each year. And there is
probably some level of funding, a steady-state level of
funding, that is required in order to do that. Is $1.4 billion
enough to do it? Well, no. I don't think so. But at the end of
the day, I am given a top line of what I have to fit within.
So, it would be very easy if I, right up front, said,
``Yeah, sure, $1.4 billion is enough.'' But it's my job to tell
you what we need, and then it's the administration and the
Congress that then tells me how much I have to spend. And then
I make informed military decisions within my Service on how we
best spend those things, which, once again, are rightly subject
to criticism by all of you, if you don't think I'm doing that
the right way.
So, I think a better way of looking at it is, you know, is
it going to be $30 billion over 30 years? Maybe. I don't know.
But maybe perhaps another way of looking at it is when you have
a business, an enterprise as large as the United States Coast
Guard, there is probably some level of acquisition money that
is required every year, just to sustain the things that we
have. Because right now we are spending some of that
acquisition money on sustaining our legacy fleet in order to
keep them operational until we can start building the OPC.
So, it's a continuum. It's not one discreet project.
Mr. Larsen. Just finally I will just make a note. I have
some questions about ice-breakers, but I understand we're going
to have a hearing in November on the Arctic. I understand it's
going to be a field hearing. Just kidding, Mr. Chairman.
But I will save my questions, but I want you to stay up the
night before that hearing as well, and think about your
comments and maybe times where you said we were basically
starting from ground zero when it comes to a presence in the
Arctic to accomplish missions up there, and what that means for
acquisition and capital investment, as well.
Admiral Papp. Yes, sir.
Mr. Larsen. Because those will be the gist of my questions.
Admiral Papp. Thank you, sir. I welcome the opportunity.
Mr. Larsen. Thank you.
Mr. LoBiondo. Admiral Papp, we thank you very much.
Appreciate your insight into this. And once again, to repeat
and reiterate, we are completely in line with the goals that
you have and what you want to do. It's just that some of these
reports become disconcerting if we can't get to the bottom of
why they're that way.
And it had nothing to do with your leadership or the
current leadership, but 6 or so years ago we had direct
assurances about what was going to happen and how it was going
to happen, and there were no problems, and just everything was
fine, and it really wasn't. So we're trying to be cautious, but
move forward in a positive way. I look forward to continuing to
working with you, and thank you and your team and all the men
and women of the Coast Guard for what they do.
Thank you. The hearing is adjourned.
[Whereupon, at 11:41 a.m., the subcommittee was adjourned.]